Svenja O’Donnell London

Traders who manipulate currency rates or borrowing costs will face criminal charges under plans to be announced by Chancellor of the Exchequer George Osborne in a crackdown on bankers less than a year before a general election.

The government is poised to extend laws imposing as much as seven years in jail for the London interbank offered rate (Libor) manipulation to gauges used in foreign exchange, fixed income and commodity markets, according to a statement by the Treasury before Osborne and Bank of England (BOE) governor Mark Carney spoke at London’s Mansion House yesterday.

The measures are part of a review by the Treasury, BOE and the Financial Conduct Authority (FCA) of how markets operate. “Markets here set the interest rates for people’s mortgages, the exchange rates for our exports and holidays, and the commodity prices for the goods we buy,” Osborne would say, according to the statement. “I am going to deal with abuses, tackle the unacceptable behaviour of the few and ensure that markets are fair for the many who depend on them.”

The measures follow scandals that roiled the country’s financial industry. Regulators on three continents are probing allegations traders sought to rig the $5.3 trillion (R56.9 trillion) a day currency market, while concern is growing that other benchmarks such as the London gold fixing may be vulnerable to abuse. So far, at least nine firms have been fined more than $6 billion for manipulating the Libor, with the investigation yet to finish.

“From the point of view of the reputation for the City of London and our financial services, the cleaner we’re seen to be the better in the long run,” Robert Rhodes, a senior trial lawyer, said. “It is perhaps surprising that more benchmarks weren’t dealt with at the time they dealt with the Libor scandal. The government has obviously now realised the seriousness and breadth of this issue.”

Libor is calculated by a daily poll that asks firms to estimate how much it would cost to borrow from each other for different periods and in different currencies. Traders sought to manipulate the benchmark for profit by making artificially high or low submissions to influence the final rate.

The government last year introduced unlimited fines and the threat of jail for those found guilty of making “false or misleading statements” about interbank offered rates, according to the FCA. Insider dealing carries the same seven-year maximum prison sentence. – Bloomberg